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Affiliate marketing is a marketing arrangement in which affiliates receive a for each visit, signup or sale they generate for a merchant. This arrangement allows businesses to Outsourcing part of the Sales. It is a form of performance-based marketing where the commission acts as an incentive for the affiliate; this commission is usually a percentage of the price of the product being sold, but can also be a flat rate per referral.
Affiliate marketers may use a variety of methods to generate these sales, including Organic search search engine optimization, paid search engine marketing, e-mail marketing, content marketing, display advertising, organic social media marketing, and more.
Though the largest companies run their own affiliate networks (for example Amazon), most merchants join affiliate networks which provide reporting tools and payment processing.
The concept of affiliate marketing on the Internet was conceived of, put into practice and patented by William J. Tobin, the founder of PC Flowers & Gifts. Launched on the Prodigy Network in 1989, PC Flowers & Gifts remained on the service until 1996. By 1993, PC Flowers & Gifts had generated sales more than $6 million per year on the Prodigy service. In 1998, PC Flowers and Gifts developed the business model of paying a commission on sales to the Prodigy Network.Chicago Tribune, October 4, 1995The Sunsentinal, 1991
In 1994, Tobin launched a beta version of PC Flowers & Gifts on the Internet in cooperation with IBM, which owned half of Prodigy.PC Week Article, January 9, 1995 By 1995 PC Flowers & Gifts had launched a commercial version of the website and had 2,600 affiliate marketing partners on the World Wide Web. Tobin applied for a patent on tracking and affiliate marketing on January 22, 1996, and was issued U.S. Patent number 6,141,666 on Oct 31, 2000. Tobin also received Japanese Patent number 4021941 on Oct 5, 2007, and U.S. Patent number 7,505,913 on Mar 17, 2009, for affiliate marketing and tracking.Business Wire, January 24, 2000 In July 1998 PC Flowers and Gifts merged with Fingerhut and Federated Department Stores.Business Wire, March 31, 1999
In November 1994, CDNow launched its BuyWeb program. CDNow had the idea that music-oriented websites could review or list albums on their pages that their visitors might be interested in purchasing. These websites could also offer a link that would take visitors directly to CDNow to purchase the albums. The idea for remote purchasing originally arose from conversations with the music label Geffen Records in the fall of 1994. The management at Geffen wanted to sell its artists' CDs directly from its website but did not want to implement this capability itself. Geffen asked CDNow if it could design a program where CDNow would handle order fulfillment. Geffen realized that CDNow could link directly from the artist on its website to Geffen's website, bypassing the CDNow home page and going directly to the artist's music page.Olim, Jason; Olim, Matthew; and Kent, Peter (1999-01). "The CDNOW Story: Rags to Riches on the Internet", Top Floor Publishing, January 1999. .
Amazon.com (Amazon) launched its associate program in July 1996: Amazon associates could place web banner or text links on their site for individual books, or link directly to the Amazon home page.
When visitors clicked on the associate's website to go to Amazon and purchase a book, the associate received a commission. Amazon was not the first merchant to offer an affiliate program, but its program was the first to become widely known and serve as a model for subsequent programs.Frank Fiore and Shawn Collins, "Successful Affiliate Marketing for Merchants", from pages 12, 13 and 14. QUE Publishing, April 2001 Gray, Daniel (1999-11-30). "The Complete Guide to Associate and Affiliate Programs on the Net". McGraw-Hill Trade, 30 November 1999. .
In February 2000, Amazon announced that it had been granted a patent on components of an affiliate program. The patent application was submitted in June 1997, which predates most affiliate programs, but not PC Flowers & Gifts.com (October 1994), AutoWeb.com (October 1995), Kbkids.com/BrainPlay.com (January 1996), EPage (April 1996), and several others.
In 2006, the most active sectors for affiliate marketing were adult gambling, retail industries and file-sharing services. The three sectors expected to experience the greatest growth are the mobile phone, finance, and travel sectors. Soon after these sectors came the entertainment (particularly gaming) and Internet-related services (particularly broadband) sectors. Also several of the affiliate solution providers expect to see increased interest from business-to-business marketers and advertisers in using affiliate marketing as part of their mix.
Cost per mille requires only that the Web publisher make the advertising available on his or her website and display it to the page visitors in order to receive a commission. Pay per click requires one additional step in the conversion process to generate revenue for the publisher: A visitor must not only be made aware of the advertisement but must also click on the advertisement to visit the advertiser's website.
Cost per click was more common in the early days of affiliate marketing but has diminished in use over time due to click fraud issues very similar to the click fraud issues modern search engines are facing today. Contextual advertising programs are not considered in the statistic pertaining to the diminished use of cost per click, as it is uncertain if contextual advertising can be considered affiliate marketing.
While these models have diminished in mature e-commerce and online advertising markets they are still prevalent in some more nascent industries. China is one example where Affiliate Marketing does not overtly resemble the same model in the West. With many affiliates being paid a flat "Cost Per Day" with some networks offering Cost Per Click or CPM.
Cost per action/sale methods require that referred visitors do more than visit the advertiser's website before the affiliate receives a commission. The advertiser must convert that visitor first. It is in the best interest of the affiliate to send the most closely targeted traffic to the advertiser as possible to increase the chance of a conversion. The risk is absorbed by the affiliate who funnels their traffic to the campaign (normally a landing page). In the case a conversion is not fired the publisher won't receive any compensation for the traffic.
Affiliate marketing is also called "performance marketing", in reference to how sales employees are typically being compensated. Such employees are typically paid a commission for each sale they close, and sometimes are paid performance incentives for exceeding objectives.CellarStone Inc. (2006), Sales Commission, QCommission.com, retrieved June 25, 2007 Affiliates are not employed by the advertiser whose products or services they promote, but the compensation models applied to affiliate marketing are very similar to the ones used for people in the advertisers' internal sales department.
While affiliate marketing is sometimes compared to having an extended sales force, affiliates typically have limited influence over prospects after referral. The primary difference between the two is that affiliate marketers provide little if any influence on a possible prospect in the conversion process once that prospect is directed to the advertiser's website. The sales team of the advertiser, however, does have the control and influence up to the point where the prospect either a) signs the contract, or b) completes the purchase.
Some advertisers offer multi-tier programs that distribute commission into a hierarchical referral network of sign-ups and sub-partners. In practical terms, publisher "A" signs up to the program with an advertiser and gets rewarded for the agreed activity conducted by a referred visitor. If publisher "A" attracts publishers "B" and "C" to sign up for the same program using his sign-up code, all future activities performed by publishers "B" and "C" will result in additional commission (at a lower rate) for publisher "A".
Two-tier programs exist in the minority of affiliate programs; most are simply one-tier.
Some merchants are using outsourced (affiliate) program management (OPM) companies, which are themselves often run by affiliate managers and network program managers.Jennifer D. Meacham (July/August 2006), Going Out Is In , Revenue Magazine, published by Montgomery Research Inc, Issue 12., Page 36 OPM companies perform affiliate program management for the merchants as a service, similar to the role an ad agency serves in offline marketing.
Relevant websites that attract the same target audiences as the advertiser but without competing with it are potential affiliate partners as well. Vendors or existing customers can also become recruits if doing so makes sense and does not violate any laws or regulations (such as with pyramid schemes).
Almost any website could be recruited as an affiliate publisher, but high traffic websites are more likely interested in (for their sake) low-risk cost per mille or medium-risk cost per click deals rather than higher-risk cost per action or revenue share deals.Marios Alexandrou (February 4, 2007), CPM vs. CPC vs. CPA , All Things SEM, retrieved November 11, 2007
In the case of affiliate marketing, these malicious extensions are often used to redirect a user's browser to send fake clicks to websites that are supposedly part of legitimate affiliate marketing programs. Typically, users are unaware this is happening other than their browser performance slowing down. Websites end up paying for fake traffic numbers, and users are unwitting participants in these ad schemes.
Spamming is the biggest threat to organic search engines, whose goal is to provide quality search results for keywords or phrases entered by their users. Google's PageRank algorithm update ("BigDaddy") in February 2006—the final stage of Google's major update ("Jagger") that began in mid-summer 2005—specifically targeted spamdexing with great success. This update thus enabled Google to remove a large amount of mostly computer-generated duplicate content from its index.Jim Hedger (September 6, 2006), Being a Bigdaddy Jagger Meister , WebProNews.com, retrieved on December 16, 2007
Websites consisting mostly of affiliate links have previously held a negative reputation for underdelivering quality content. In 2005 there were active changes made by Google, where certain websites were labeled as "thin affiliates". Spam Recognition Guide for Raters (Word document) supposedly leaked out from Google in 2005. The authenticity of the document was neither acknowledged nor challenged by Google. Such websites were either removed from Google's index or were relocated within the results page (i.e., moved from the top-most results to a lower position). To avoid this categorization, affiliate marketer webmasters must create quality content on their websites that distinguishes their work from the work of spammers or Web banner farms, which only contain links leading to merchant sites.
Affiliates discussed the issues in Internet forums and began to organize their efforts. They believed that the best way to address the problem was to discourage merchants from advertising via adware. Merchants that were either indifferent to or supportive of adware were exposed by affiliates, thus damaging those merchants' reputations and tarnishing their affiliate marketing efforts. Many affiliates either terminated the use of such merchants or switched to a competitor's affiliate program. Eventually, affiliate networks were also forced by merchants and affiliates to take a stand and ban certain adware publishers from their network. The result was Code of Conduct by Commission Junction/beFree and Performics,December 10, 2002, Online Marketing Service Providers Announce Web Publisher Code of Conduct (contains original CoC text), CJ.com, retrieved June 26, 2007 LinkShare's Anti-Predatory Advertising Addendum,December 12, 2002, LinkShare's Anti-Predatory Advertising Addendum, LinkShare.com, retrieved June 26, 2007 and ShareASale's complete ban of software applications as a medium for affiliates to promote advertiser offers. ShareASale Affiliate Service Agreement, ShareASale.com, retrieved June 26, 2007 Regardless of the progress made, adware continues to be an issue, as demonstrated by the class action lawsuit against ValueClick and its daughter company Commission Junction filed on April 20, 2007.April 20, 2007, AdWare Class Action Lawsuit against - ValueClick, Commission Junction and beFree , Law Firms of Nassiri & Jung LLP and Hagens Berman, retrieved from CJClassAction.com on June 26, 2007
Education occurs most often in "real life" by becoming involved and learning the details as time progresses. Although there are several books on the topic, some so-called "how-to" or "silver bullet" books instruct readers to manipulate holes in the Google algorithm, which can quickly become out of date, or suggest strategies no longer endorsed or permitted by advertisers.
Outsourced Program Management companies typically combine formal and informal training, providing much of their training through group collaboration and brainstorming. Such companies also try to send each marketing employee to the industry conference of their choice.March/April 2007, How Do Companies Train Affiliate Managers? (Web Extra), RevenueToday.com, retrieved June 26, 2007
Other training resources used include online forums, weblogs, podcasts, video seminars, and specialty websites.
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